Is it possible for a non-resident to get a mortgage in Italy?
Buying a house is a significant milestone in many people's lives, and obtaining a mortgage can be necessary to make this dream a reality. But what happens if you are not a resident of Italy? Is it possible to get a mortgage in Italy for a non-resident? The answer is yes, but there are several considerations and restrictions to keep in mind.
Available Banks for Americans to Obtain Mortrage in Italy
For a resident with Italian income, accessing a mortgage can be relatively straightforward, with a wide range of banks to choose from. However, for a non-resident, the options are significantly reduced. While a resident might have about 100 banks to approach, a non-resident has access to only around five financial institutions that offer this service.
Loan Amount and Debt-to-Income Ratio
Banks tend to be more conservative when granting mortgages to non-residents. Generally, the Loan to Value (LTV), or the percentage of the property's value that can be financed with a mortgage, is 50-60%. Additionally, the Debt to Income (DTI) ratio must remain below 35%, including the payments of any existing loans.
Type of Income
One of the main discriminants for obtaining a mortgage is the type of income the client has. For employees, the bank can easily calculate the net income and determine the borrowing value. Conversely, for those with income from business or corporate shares, calculating net income after taxes and expenses can be complex and time-consuming. Banks often prefer to avoid this complexity, thus turning away these clients.
Legal Responsibility
Accurately calculating the borrowing value is a matter of legal responsibility for banks. In Italy, the CONSOB, the banking supervisory authority, imposes strict rules to protect clients. Banks must adhere to precise contractual limits and, in cases of uncertain or difficult-to-assess situations (such as foreign income from businesses), they prefer to decline rather than risk legal issues.
Competitive Interest Rates
A positive aspect of the Italian banking system is the competitive interest rates for property purchases. Italian banks primarily earn through cross-selling various services (insurance, current accounts, pension funds, financial investments, credit cards) rather than through mortgage interest rates. However, this makes non-resident clients less "valuable" compared to residents.
Required Documents
To apply for a mortgage in Italy, several documents must be presented, divided into two main categories:
personal documents and income documents.
Personal Documents:
Passport or ID card
Certificate of residence
Family composition certificate
Any rental contracts
Income Documents:
Employment contract
Bank statement
List of transactions for the last three months
Any balances in investment or pension funds
Last two income tax returns and respective tax payment certifications
The time to receive an official response from the bank is about 40 working days, but it can take longer if the documentation is incomplete and additional information is required.
First Home vs. Second Home
A positive aspect of the Italian banking system is In Italy, the distinction between "first home" and "second home" involves different tax implications. Property taxes are divided into two main categories: the registration tax at the time of purchase and the IMU, an annual property tax.
First Home Benefits
For properties purchased as a "first home," the registration tax is significantly reduced (2% of the cadastral value compared to 9%) and the IMU is eliminated. However, to benefit from these reductions, one must not own other properties in Italy and must transfer their residence to the purchased property within 18 months. Luxury properties do not enjoy these benefits.
Additional Costs for Buying Property
Notary Fees
The only mandatory expense in a property transaction in Italy is the notary. The fee for the sales contract is about €2,000, plus the purchase taxes, which the notary collects on behalf of the State. If a mortgage is used, the notary's fee increases by about €1,000 for registering the contract with the bank.
Real Estate Agency
In 99% of cases, a real estate agency is involved in the mediation between seller and buyer. The agency's commission typically ranges from 2% to 4% of the property price.
Mortgage Costs
If the purchase is financed with a mortgage, the costs to consider are:
Processing fees: about 1% of the requested mortgage
Appraisal fees: around €300
Mortgage taxes: 0.25% of the mortgage amount for the "first home," 2% otherwise
Mortgage broker commission: about 2.5% of the mortgage amount
Insurance: mandatory fire and explosion insurance for the house. Often, banks also require life insurance for the applicant, covering the mortgage amount.
Final Considerations
Obtaining a mortgage in Italy to purchase a home can be advantageous, especially due to the competitive interest rates. Even those with the financial means to buy a property outright might find it beneficial to take out a mortgage. A fixed interest rate of 3% per year allows one to invest their unused capital for potentially higher returns.
It is advisable to present the bank documentation with a client presentation report, facilitating the bank's work in assessing net income. This can prevent requests for additional documentation, which can delay the approval process. Anticipating answers to predictable questions at the initial stage can speed up the process.
Conclusion
In summary, while obtaining a mortgage in Italy as a non-resident presents challenges, it is certainly possible. With adequate preparation, complete documentation, and a clear understanding of Italian regulations, one can achieve the dream of buying a home in Italy, benefiting from competitive interest rates and the potential investment opportunities this entails.
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